Episode 127: Expecting Unpredictability: The Secret To Your Million Dollar Canadian Portfolio Growth

Listen here on our website:

Or jump to this episode on your favourite platform:

Watch Now!

Are you prepared for the next major curveball life throws your way, or are you hoping it never arrives on your way to financial freedom?

If you’ve ever felt uneasy about where your financial portfolio stands in today’s fast-changing world, this episode offers peace of mind. You’ll discover why “unpredictable” economic swings and personal financial surprises aren’t just random nightmares, but regular occurrences you can proactively prepare for. By recognizing that uncertainty is the norm, you’ll feel less stressed about your investments and more confident in your plan for retirement.

Most of us want to know our future selves will be secure and able to weather any crisis—big or small. This conversation walks you through proven strategies to build a financial foundation that can stand firm no matter what surprises the market or life events bring. Whether you’re seeking steady growth, better tax planning, or simply want peace of mind, this episode sets you up for success.

• Gain a blueprint for balancing risk and resilience in your investment strategy.
• Learn how to harness “unexpected events” to your advantage by building a diversified plan.
• Discover ways to stay flexible with changing tax laws and regulations to protect your wealth.

Press play now and learn how to build a rock-solid financial plan that thrives in any economic storm!

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Achieving financial independence retire early (FIRE) requires smart planning, especially when it comes to growing your net worth and generating passive income with a focus on the sequence of returns of your Canadian investment portfolio. For business owners, navigating the complexities of corporate structures, tax implications, and investment strategies can feel overwhelming. From understanding capital gains rules to leveraging life insurance for wealth optimization, the right approach can transform your financial future. By aligning your strategy with tax-efficient tools, you can unlock the full potential of your business and investments, ensuring sustainable growth and long-term independence.

Transcript:

Jon Orr: Over the holidays, I started to re-listen and I actually listen to most of my books, you whether I’m exercising, traveling, you know, whatever. I used to be an avid reader, but now I can, you know, listen to audio books. Now I’ve listened to The Psychology of Money by Margaret Housel a few years ago, I think when it first came out, but I was re-listening over the holidays and a gem in that book really stuck out to me that we want to make the focus of some of the questions we want to answer here today in this episode.

And that gem was like this truth. And the truth here is that we really should be thinking about the least, and this is the kind of like backwards way of thinking here is that the least surprising thing about predicting the future is that surprising things happen all of the time. You know what I mean? it’s like surprising things happen all the time.

but we think that they’re like these unique events. So it’s like when you think about them individually, they are unique and they don’t happen all the time, but actually surprising things like those happen all of the time. And so what we wanna do here in this episode is put our spin on it, right Kyle?

Kyle Pearce: Absolutely. So we’re going to be taking this idea. We’re going to be breaking down the steps we can all take to be ready for those inevitable curveballs, right? Because again, like you said, they are going to come like that’s one thing we can guarantee they are going to come. So three questions we’re going to unpack in this episode include if the future is so unpredictable, how do we build a portfolio and a retirement plan that’s resilient enough?

to handle unexpected events? What steps can we take right now to ensure that we’re prepared for life’s financial curve balls? And how do taxed changes, evolving regulations, and other economic shifts fit into the surprise factor? And what can Canadians do to stay flexible and informed? John, I’m excited to dig in. I have not recently unpacked or reread this book, but I have read it.

two times in the past and you’re encouraging me right now to pick it back up because I learned something new every single time. And sometimes, you know, you just get this this settling feeling after you read that book, which which I am feeling like I’d like to have as I enter 2025.

Jon Orr: Ooh. Totally. It’s one of those, I think it’s one of those books that I now, I think you just nailed it with the settling feeling, because I think that’s exactly what I’m feeling again. And it’s one of those, think, that you’re gonna be like, I’m gonna read this every year. And reading it over the Christmas holidays is a great time to have that settling feeling going into the next year and thinking about your portfolio. And I think that’s why we wanted to talk about this at this time of year too, is because many of you listeners right now are thinking about

You know, rebalancing, know, structuring, thinking about retirements. Am I on the right financial planning track? You know, so we would do want to think about some of these events that we can plan for. Like, like Kyle said, like, and like the book says is that you can predict, you can rely on, there will be life changing events, not, you know, not just in say the stock market or, or the financial markets or the real estate market or any of these markets that you’re currently in, they’re going to be in your life, right? Like, like life changes are going to happen yourself personally.

Um, and then they’re, they’re also going to happen macro level, you know, like I was, I was just even reflecting on, on, you know, not just black swan events, like at nine 11 or COVID or, know, the 2008, 2009, you know, crash, um, or, know, when we, we have these kinds of crashes, like we think that when we think about the black swan events, when we think about unpredictability in our, in our terms of our retirement, in terms of our portfolios, but I also want to

to set the stage here about thinking about unpredictable events that are in a way change everything. It’s not necessarily the black swan, the negative things that you’re just gonna take a deep dive on your stock portfolio or your retirement nest egg. It’s thinking about like even just these kind of like sliding door moves or these sliding door kind of scenarios. And I was actually watching a show on Apple TV

which, and I watched this particular show, because I read this book a number of years ago. geez, now, now I’m on the spot, because I can’t even remember the title, but it was specifically about like the parallel universes and looking at going like, if I take a choice and I make this choice and all of sudden there’s a parallel universe, that where you go down that pathway and this is where this universe is, and it’s like.

Kyle Pearce: Now you’re on the spot. Ha ha ha!

Jon Orr: everything’s changed because of this one little choice in not only your life, but maybe in the whole world. like, so it makes me think about these like changes in economics or macro level. like I was just saying to you Cal before we hit court is like, imagine these two individuals didn’t exist, how much fundamentally our economy would be different. So it’s like, imagine Mark Zuckerberg did not invent Facebook and like Steve Jobs also either wasn’t born or didn’t invent it. imagine, imagine that like,

You can make these small changes, like they sound like big changes, but in a way it’s like some decision somewhere led to those two things happening. And if they didn’t happen, then you think about economically how much of our economy and you think about the stock market in terms of like the weighting of the S &P 500 right now on Facebook and Apple and social media in general, like how much of our economy now is based on social media?

and our handheld devices that have smartphones. And so it’s like, if you think about those two things not existing or not, would they have come out? We don’t know, but it’s like massive changes. And you looked up a stat that was so interesting that also can guide the questions we wanna answer. And we do wanna answer those questions about future predictability. How do we prepare those portfolios? What steps are we gonna take? And then what those tax implications?

Kyle Pearce: Right. Absolutely. You brought a couple ideas in my mind. And Elon Musk pops into my mind. There’s all kinds of others. It’s easy to name the ones that were successful. It’s not as easy to name the ones that weren’t. So if we go all the way back, I’m going to pick Jeff Bezos and Amazon all the way back. Amazon was around at the dot com bubble. So for those who were around, I wasn’t an active investor by any means back then. I think I was still living at home with the parents at that time.

But there’s something interesting that some of the biggest companies today were created during the biggest tech bubble of all time. Now, some would argue we’re in a bigger one now, that we’re actually dealing with a bigger tech bubble than we did back in 1999. So take that for whatever it’s worth. most of the companies, the vast majority of those companies, do not exist anymore. And yet, Amazon succeeded. Apple succeeded.

The hardest part about that is that it’s so hard to try to predict these positive surprises versus negative surprises. Because if I go all the way back and I ask my parents about the dot com bubble, bet you someone who bought Apple or bought Amazon before the tech bubble and they saw the stock go all the way down like it did 70, 80, 80%, whatever it was. And let’s say they held it until today.

That person is probably mega wealthy if that person exists, right? But then you have the stories like my parents, for example, my mother was an employee of the biggest telecom company here in Canada. I don’t want to name it, but there was a spin-off company and she was an employee. So she got stock in this company called Nortel and Nortel was at the time go into the moon. And it turned out that the company didn’t really have anything.

like no products, no services, no revenue. And it was all based on speculation. And that stock basically went all the way to zero. Now, had she had Amazon, you know, and held it like, you know, we’d probably not be on this episode right now. You know, I’d be living on my own island somewhere. However, the whole idea here, and I think the piece that we have to always remind ourselves about as we’re planning for our investments, for our financial future,

is that these curve balls are always going to come and how do we position ourselves so that we can take advantage of some of these positive curve balls without necessarily striking out because the vast majority of baseball players actually they actually don’t get hits more than they get hits right and what we want to do is we want to try to tilt the tables in our favor so that no matter what happens whether these are positive surprises or negative surprises

that were positioned so that emotionally we can kind of hold it together and financially we can actually sustain and get to the place that we were trying to get to all the time along.

Jon Orr: Now you brought up some great kind of add-on points there too. And I think it reminds me of the stat that on the Fortune 500 companies, like 52 % of the companies on Fortune 500 don’t exist anymore since 2000. So that’s in a way it’s like not, so we talked about the black swan events, but we also talked about changing an economy, right? Like why we need to be predict, like why these things are unpredictable.

Kyle Pearce: Less than 24 years ago, right?

Jon Orr: and where you just rely on the predictableness of the unpredictability. I think, so let’s go into like try, we’ll answer our first question here. So our first question is like, if the future is so unpredictable and we can predict that unpredictability, how do we plan and build our portfolios? What does that look like? What are our retirement plans? Like, what are we doing to handle these unexpected events? So.

I’m going to toss this to you, but I’m also going to remind our listener, and maybe we’ll riff on this for just for a few minutes here, around the series that we just released recently. So if you’ve been listening, currently up to date episodes, or you’re kind of going back in the catalog, we put four episodes together around the math behind retirement here in Canada. We also have.

basically a guide on our website. If you went over to Canadianwellsecrets.com forward slash retirement, we have a kind of the ultimate guide to retirement here in Canada and planning for it. So when we think, and again, what we talk about in those episodes and what we talk about in that guide very much accounts for the unpredictability that we do want to plan for. And so we want to.

Let’s let’s Kyle, let’s let’s just highlight a couple tools that we would use and couples thinking some thinking and really really just use this few minutes here to answer this question to point our listener to go. I’m to take a deep dive over there because I do want to make sure I plan and use the right tools and use the right strategies for planning my retirement or planning for my portfolios around these unpredictabilities.

Kyle Pearce: Yeah, I love it. And you know, I think one of the biggest pieces is starting early and staying consistent, right? And I think, you know, both of those things are hard, right? Because like starting early is often harder, especially if it’s a younger listener right now. So if you’re in, you know, maybe your 20s or maybe you’re even in your early 30s, you know, I’ve been lucky enough to speak to a ton of podcast listeners, many of which are earlier in the journey than I am right now, meaning

you know, around 30 years old and they’re already doing a great job with that early start. So that’s amazing. The staying consistent is key. And you know, if I can set up something and then I can always adjust that up, right? So getting something, even if it’s small, it doesn’t matter what the number is, making sure that it’s consistent because time flies when you’re fill in the blank, right? Having fun or you know, when times are tough or when you know, business is busy like

you can fill in the blank on that. And it’s so easy for time to just sort of like, it feels like a time warp. And you think to yourself, if I was just doing something consistent, it puts you in a position so that you can, you know, get closer to those goals. So I think those two are really important. The other thing that I think that we need to really be cognizant of

is trying to avoid looking for the home runs, right? And I think a lot of people get to this place if they feel like maybe they’re starting later than maybe they had liked. I gotta speed this up, so what do I do? I start to think about how do I get upsized returns, right? Like I wanna get the home run. But with the home run comes or it introduces anyway, the higher probability for more surprises.

Jon Orr: Hmm, I gotta speed it up.

Kyle Pearce: Right? Like those surprises can be positive, but they can also be really negative. So sometimes, you know, when, although we are into risk on type investments, you know, you’ve got to really feel confident with whatever the asset class is that you’re playing in and just be confident that you understand what can happen at different times. Cause let’s be honest, John, we all have recency bias, right?

recency bias is whatever is happening in the recent future seems like it’s always going to happen. Right. And I remember during the COVID period, it was like recency bias was telling everyone, my goodness, if I buy real estate, things are going to be great. And they were for about 12 to 18 months. And then everybody got, you know, sorta a kick in the teeth when interest rates started rising. There’s so many variables that are out there.

So if you got into real estate during the COVID bubble, it’s not all bad. Like John and I, you and I hold a property that we did not intend to keep. It was supposed to be a flip. And now we keep it. It’s in our long-term portfolio. Why is it? Because we know that this property is, from an equity perspective, if we were to sell it today, we’d actually be slightly in the red if we did so. So what are we doing?

We’re renting it out, we add it to the portfolio and we know that time will, you know, float the ship again and things will be okay. We’re not losing sleep over that because we knew going in that there were certain risks and unfortunately that surprise came out of left field and now we’ve got a long-term rental that we never would have purchased for that intention. However, we were confident in the asset class. I can only imagine how we’d feel

if that was our first rental ever and we were just dipping our toes into this idea of doing a flip and we weren’t, you we didn’t in the back of our minds say to ourselves, we’re okay with holding on to this thing if things don’t go as we might have planned.

Jon Orr: Right here. Yeah, yeah, I want to move into the second question, which, you know, is still related to the first question. The first question being like, how do we how do we know how do we build that portfolio? How do we think about the retirement planning? How do we think about, you know, the moves that we’ve been making? But then the next is thinking about what are those steps like? What are the tools? What are the things that we can be putting into place right now to also account for, you know, using some of these strategies? And I think one of the big takeaways from that retirement series that we put out for me and made

made sure that I was putting these actionable things into place. Whereas two things, one, the big idea from that series was when we unpack the math, like the whole series was about unpacking the math behind investing in your 60-40 portfolio, a 50-50 portfolio, 100 % equity portfolio, and looking at, do I have enough? And answering that question, will I have enough if these events happen?

The key one I think happened in episode two, the second or third episode or both episodes, we looked at the sequence of returns, which has to do with say these Black Swan events that could happen, the unpredictability-ness. And we looked at like if they happen at the beginning of your investing cycles, if they happen in the middle, what is happening there? And we came up with some tools, some strategies that I think are super important that we can take action on. So because of the unpredictability, one,

is something that’s related to also having an emergency fund, you know, is thinking about how do I have this cash wedge? How do I have this other, you know, bucket that I can build at the same time as my, say, 100 % equity portfolio or whatever my portfolio is for retirement? So that when I have those down years, which those Black Swan events, that I can say dip into the wedge, the tool,

to pull from those accounts instead of the retirement accounts because we did the math we looked at the math and said when you pull from say even even a down year how hugely negative impact it has on the future growth of your portfolio and basically Completely changes the income you could start pulling when you go to retire So so we want to have to say that that wedge or that tool now we talked about in those episodes around what?

different wedges could look like, but the idea of having this alternate capital access that you could then rely on. whether it’s borrowing or borrowing against an asset or, you know, maybe it’s just in cash or maybe it’s in another safer asset. And this is why I think lots of folks do the 60 40 portfolio, but you know, when a 60 40 portfolio, you know, a lot of times when those equities have those black spawn events, the 40 goes down too. So.

So when you have this alternate, say safe asset you can rely on, that’s a great tool to use that we want to make sure that we set up. And one of those things we talked about is having that whole life policy that can grow like an asset that is safe, but also has the capital available to kind of borrow from, pull from, like your home equity line of credit when those down years happen. Because even if you are risk managing to make a 0 % year, you know, still pulling from a 0 % year has a negative impact on that too.

Kyle Pearce: 100%, 100%. And I think one of the key pieces is, you know, it’s never in either or. And I think when people are like kind of, you know, as humans, we like to sort of go all in on one thing. You know, I say it often on the podcast. We’re all in or all out. We’re on or off. And I think a lot of times when it comes to investments,

we are like that as well, which is actually the exact opposite of what we wanna be doing, right? Like we want to be diversifying, but not necessarily diversifying like where you just take a shotgun and just like spray it all out there, because that’s not necessarily gonna be helpful either. But if what we’re really talking about is sort of your asset allocations from like an equities portfolio, a fixed income portion of your portfolio, real estate potentially, maybe those alternative assets as well.

but making sure that you have enough diversification because sometimes in a black swan event, like everything kind of goes down. So you have to make sure that you’ve got some safety there as well. you you had mentioned the permanent insurance piece for us, we utilize it for tax optimization, but we also utilize it as opportunity funds because one thing I know, and it happens all the time,

is that we’ll have a certain amount, say, in our equity portfolio. And we’re mostly ETF type investors nowadays because we’ve learned many times, we’ve struck out many times in the past on individual companies or stocks or assets that putting money into ETFs is great. But you know what really hurts your soul a bit is when the market takes a bit of a dip or even a significant dip.

and you’re fully invested in the market and all you can do is just sort of watch. I love having the like knowing in my mind that I have this extra bucket available to me that is really there. It’s supposed to be there more or less for opportunities. Usually we’re more real estate minded when we consider leveraging against our policies. But the reality is, is that if the market takes a 20 % dip tomorrow, you can bet yourself that I’m going to be pulling money.

and I’m going to be leveraging against those buckets so that I could take advantage of the market. So the big message here is that it’s not an either or like it’s not a, know, you should do stock investing or you should do real estate or you should put all your money in permanent insurance. Like none of those ideas are really logical. you want to make sure that you have some diversification so that no matter what happens that

we can sort of weather that storm. And hopefully, like you had said at the top of the episode, we’re always planning for these like negative surprises. But by doing so, you’re going to take advantage of some positive surprises as well, which I think is really critical. Because if you’re in one asset class and that positive surprise happens in another asset class, guess what you’ll probably start feeling because you’re a human being FOMO, right? You’re going to start going, man, I wish I wish this, I wish that.

then you know what people start to do, they start to shift things over and then they go all in over here and well guess what, guess where the next happy, you know, surprise comes from or this positive surprise. it’s now it’s in the asset class that you were just kind of shifting from right. So diversification is so critical.

Jon Orr: Let’s move into the last question that we want to address here when we’re talking about unpredictableness and the predictability of the unpredictableness. I don’t know how many times I’m gonna be able to say that anymore, which is that question about like, so how do we, like how do tax changes and how do we plan for those tax changes when they may be unpredictable? And why I say that is because someone might say that the only true things, you know, or the only for sure things in life are death and taxes, right? Which means like,

in a way, like, is taxes the most predictable thing that’s gonna happen? But, which may be true, you are going to be responsible for figuring out your tax situation in the future. But the unpredictable part here is, how many times have policy changes impacted portfolios? What does it look like? One thing that I know for sure is that most times, I think it was only like 20 years ago, the retirement plan and strategy,

only dealt with like RSPs and pensions, right? Like TFSAs didn’t show up until like 97, like as part of like tax strategies. So like even like a generation ago, like our parents didn’t include the use of TFSAs in their strategies. And that’s in a way like a policy tax change for structure. So not even talking about like percentage changes or category changes.

It’s like these tools are gonna change along the way that we could then optimize. So Kyle, last question here. Let’s chat about like what implications do we wanna just be ready to predict that unpredictableness around taxes and the tax structures?

Kyle Pearce: Yeah, you know what? It’s it’s I like to say you’ve got to play the game as it’s played today. Like that’s the thing you have to do. But you also want to just be thinking about like how and I think it really connects to diversification. This is where diversification could be really helpful. Specifically, not just asset classes, but also in terms of the buckets, right? Like in terms of having diversification across the different

buckets that you have your assets in. So if we speak about like stocks and bonds specifically, there’s different buckets that we can diversify where we hold those assets. Like we shouldn’t be thinking it’s all this or all that. Like for some very specific cases that might make sense given current tax rules. Like for example, our incorporated business owners, do we want to promote you taking out?

a ton of money as a T4 every year just so you can stuff your RSP, I’d argue there’s some better ways. However, if you’re a business owner who’s earning more than $500,000 of net operating income inside your corporation, you’re gonna get taxed on any dollar above that 500,000, that 26.5%. So for that business owner, might make sense to take a higher T4 so that you can then stuff your RSPs

in order to get that 26 and a half percent back or it’s actually going to be a higher a higher tax rate because that 26 and a half is going to be your average rate at a personal level but you’ll be at a higher marginal rate so you’ll get to get that tax money back and now you’ve got some money stuck or trapped in the rsp in that case it still makes sense for that individual but what we don’t want to do is sort of again get back to that all in or all out mindset where

we’re gonna only do our RSP. So we’re only gonna do tax free savings or someone I spoke to recently is like, I only do the Smith maneuver. So I leverage against my home and I put it in my unregistered account to create tax deductible interests. Like that person actually had a fairly significant T4 income. So I would argue, well, you know what? You could probably put your RSP to good use.

And then there would probably be a point at which you might not want to continue doing so if that RSP gets too large, like a lot of people who reach out to us where they go, holy smokes. You know, my parents, for example, have, you know, six million stuck in their RSP because and now they’re 80 years old and you know, there’s only so much time, you know, those things become problematic because you know, that’s six million or eight million or whatever is in that RSP. First of all, good problem to have. It means they invested well.

And you know, that’s great. So they’ve had some good surprises happen in their investing journey. But the reality is, is that if they pass now, or I shouldn’t say if, but when they pass, hopefully, you know, over the next 20 years, not anytime soon, they might still have like multiple millions of dollars in that RSP that are now all going to be taxed in that final tax year. So being strategic about how we utilize the tax rules now is really key.

and setting yourself up with different buckets so that if a rule does change down the road, you’re not all in on one bucket and therefore sort of stuck with this unhappy or unpleasant surprise like we had mentioned.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

OPTIMIZE YOUR FINANCIAL FUTURE